G7: US Warns Japan To Stick To Rules On Currency (May 2013)

Jack Lew said that Japan had “growth issues” that needed to be addressed, but that its attempts to stimulate its economy needed to stay “within the bounds” of international agreements to avoid competitive devaluations.

“I’m just going to refer back to the ground rules and the fact that we’ve made clear that we’ll keep an eye on that,” Mr Lew told CNBC.

The yen sank to a fresh four-year low against the dollar on Friday, a day after it pushed beyond the psychologically important 100 yen mark. Kathleen Brooks, research director at Forex.com, said that it would “take an almighty dollar negative event” to push the dollar back below the 100 level.

The dollar weakened slightly to 101.37 yen after a closely-watched speech by US Federal Reserve chairman Ben Bernanke on Friday made no mention of the central bank’s plan to taper quantitative easing purchases, but managed to told on to yesterday’s gains.

Japan insisted its tumbling currency would not be a hot topic at the G7 meeting of finance chiefs in London this weekend, despite revived rhetoric about a currency war.

There has been concern among policymakers that Japan is engineering an export-led recovery that could hinder other regions’ ability to grow. Prime minister Shinzo Abe vowed to “free [Japan] from deflation” when he was elected last December, and the country’s central bank has since issued a new wave of ultra-loose monetary policies, dubbed “Abenomics”.

Meanwhile, officials from the IMF said it was monitoring risks that cash from monetary easing could drive asset bubbles.

“There is a risk of overheating of domestic economies, so we have to pay close attention to this risk,” said IMF Deputy Managing Director Naoyuki Shinohara. “There are some warning signals, but it is not up to the level to ring alarm bells,” he said.

Yuko Kinoshita, assistant to the director of the IMF’s regional office for Asia and the Pacific, warned of a potential spike or “bubble trend” in asset prices.

“If these are not controlled, there could be a serious boom and bust cycle,” she said.